It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Parex Resources (TSE:PXT). While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.

See our latest analysis for Parex Resources

How Fast Is Parex Resources Growing Its Earnings Per Share?

Parex Resources has undergone a massive growth in earnings per share over the last three years. So much so that this three year growth rate wouldn't be a fair assessment of the company's future. As a result, we'll zoom in on growth over the last year, instead. Parex Resources' EPS shot up from US$3.93 to US$5.51; a result that's bound to keep shareholders happy. That's a fantastic gain of 40%.

One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. To cut to the chase Parex Resources' EBIT margins dropped last year, and so did its revenue. That will not make it easy to grow profits, to say the least.

You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image. earnings-and-revenue-history

You don't drive with your eyes on the rear-view mirror, so you might be more interested in this freereport showing analyst forecasts for Parex Resources' future profits.

Are Parex Resources Insiders Aligned With All Shareholders?

It should give investors a sense of security owning shares in a company if insiders also own shares, creating a close alignment their interests. Shareholders will be pleased by the fact that insiders own Parex Resources shares worth a considerable sum. Indeed, they hold US$40m worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. While their ownership only accounts for 1.5%, this is still a considerable amount at stake to encourage the business to maintain a strategy that will deliver value to shareholders.



Should You Add Parex Resources To Your Watchlist?

If you believe that share price follows earnings per share you should definitely be delving further into Parex Resources' strong EPS growth. This EPS growth rate is something the company should be proud of, and so it's no surprise that insiders are holding on to a considerable chunk of shares. On the balance of its merits, solid EPS growth and company insiders who are aligned with the shareholders would indicate a business that is worthy of further research. However, before you get too excited we've discovered 2 warning signs for Parex Resources (1 can't be ignored!) that you should be aware of.

Although Parex Resources certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see insider buying, then this freelist of growing companies that insiders are buying, could be exactly what you're looking for.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.